Summary
In Sward, Tri-State, the subcontractor/employer of the injured employee, Sward, argued that the trial court had improperly permitted the jury to assign causal negligence to Tri-State in Sward's suit against the general contractor, Nelson Construction, in order to determine Tri-State's indemnity to Nelson Construction. Sward, 2003 WL 118206 at *5.
Summary of this case from Eischeid v. Dover Construction, Inc.Opinion
No. 1-1016 / 01-0020
Filed January 15, 2003
Appeal from the Iowa District Court for Cherokee County, John D. Ackerman, Judge.
The defendant appeals, and plaintiff cross-appeals, from a district court ruling in plaintiff's indemnity action entering judgment against the defendant for damages suffered by one of defendant's employees. AFFIRMED.
Mark McCormick of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellant.
Jeffrey Sar of Baron, Sar, Goodwin, Gill Lohr, Sioux City, for appellee.
Heard by Mahan, P.J., and Zimmer and Eisenhauer, JJ.
Tri-State Drywall Company appeals, and Nelson Company cross-appeals, from a district court ruling on Nelson's indemnity action entering judgment against it for damages resulting from work-related injuries sustained by a Tri-State employee. Tri-State contends the district court erred in (1) ruling that the plaintiff was entitled to judgment against Tri-State for payments the plaintiff made to the injured employee, (2) instructing the jury that the employee's knowledge was imputable to Tri-State, (3) overruling its objection to the jury instruction allowing the jury to assign it causal negligence to Tri-State, and (4) calculating the appropriate judgment. We affirm.
I. Background Facts and Proceedings. Brian Sward, an employee of Tri-State was severely injured when he fell through an unguarded opening in the mezzanine floor of a HyVee construction site. The plaintiff, Nelson Company, had entered into a contract with HyVee to act as general contractor. Nelson entered into a subcontract with Tri-State to install drywall, including the area near the unguarded floor opening. Pursuant to section 14 of the subcontract:
The Subcontractor covenants and agrees to comply fully with the provisions of all statutes, rules, and regulations of the state and local governments and agencies in which the project is located pertaining to safety and to the maintenance of safe working conditions in connection with the subcontract work, and with the applicable provisions of the Occupational Safety and Health Act [OSHA] of 1970, as amended, and to establish safe and healthful working conditions for its employees in connection with the Subcontract work according to all occupational safety and health standards applicable thereto issued by the Secretary of Labor during the time of performance of such work. Subcontractor further aggress to notify the Contractor in writing as to any unsafe working conditions which may exist in any areas at the job site where Subcontractor's employees may be working for which conditions Contractor or another subcontractor's or separate contractor may be responsible. Subcontractor agrees to indemnify, defend, and hold Contractor harmless from any and all penalties, fines or expenses which Contractor may incur by reason of the violation by Subcontractor of any of the terms and provisions of said state or federal laws, rules or regulations or standards and any penalties or fines which the Contractor may incur by reason thereof due to unsafe working conditions in any area at the job site where Subcontractor's employees may be working and where Subcontractor has failed to notify Contractor of the existence of such conditions as set forth in the proceeding sentence. (Emphasis added).
In addition to this clause, section 6, paragraph (b) of the subcontract provides that Tri-State agreed to:
indemnify and defend the Contractor against and save him harmless from any and all claims, suits or liability for injuries to property, injuries to persons including death, and from any other claims, suits or liability on account of any act or omission of the Subcontractor, or any of his officers, agents, employees, or servants.
On April 1, 1992, Sward brought an action against Nelson for his injuries and damages. Nelson then filed a cross-petition against Tri-State seeking indemnification for all damages paid resulting from Sward's injuries. Trial of the cross-petition was severed from Sward's claims against Nelson. Nelson settled Sward's claims in consideration of his release of a $687,527.27 workers' compensation lien by Tri-State's insurance carrier, Travelers Insurance Company, and a cash payment of $2.9 million.
At trial on Nelson's cross-petition against Tri-State, Nelson introduced evidence that Tri-State was aware that there was no guardrail as required by 29 Code of Federal Regulation section 1926.500(b)(1), and that Tri-State at no time informed it there were any unsafe conditions at the site. OSHA experts testified that the code provisions applied to Tri-State's work, and Tri-State breached its duty by failing to inform Nelson. Tri-State admitted the failure to have a guardrail was a violation, and that it did not conduct safety inspections as required by 29 Code of Federal Regulation section 1926.20. The president of Tri-State admitted it took no precautions to insure its workers' safety at this worksite.
The district court, in a supplemental order regarding pretrial conference, ruled Nelson was entitled under the subcontract to indemnification for all or some of its losses and costs, including attorney fees, for any breach by Tri-State of its section 14 duties relating to job site safety. However, because Nelson could not seek indemnification for losses based on its own negligence, the court submitted the case to the jury to allow it to allocate causal negligence for Sward's injuries among Nelson, Tri-State, and Sward. The court instructed the jury that if it found Tri-State breached any one of five duties owed under the subcontract, it was to assign a percentage of causal negligence against Tri-State in a special verdict. The court additionally instructed the jury that Sward's knowledge of the unsafe condition was imputable to Tri-State.
Tri-State filed numerous motions for summary judgment, arguing Nelson was not entitled to seek indemnification under the subcontract based on negligence, since Nelson asserted only a contractual right to indemnity. Tri-State maintained Nelson would be unjustly enriched if Tri-State was not given credit for the waived workers' compensation lien. Tri-State further argued Nelson's sole contract remedy under subcontract section 14 was a right to indemnity for OSHA fines or penalties. The district court rejected Tri-State's arguments.
The jury returned special verdicts assigning Tri-State fifty percent of fault, Nelson forty-five percent, and Sward five percent. Based on its interpretation of the jury's verdict, the district court entered judgment against Tri-State for $1,526,315.70, plus $72,833.08 for attorney fees. The district court denied Tri-State's motion for judgment notwithstanding the verdict and motion for new trial. Tri-State has appealed.
II. Scope of Review. Our scope of review is for correction of errors at law. Iowa R.App.P. 6.4. We are bound by the jury's findings of fact if supported by substantial evidence. Iowa R.App.P. 6.14(6)(a). Evidence is substantial when a reasonable mind could accept it as adequate to reach the same findings. Bazal v. Rhines, 600 N.W.2d 327, 329 (Iowa Ct.App. 1999).
III. Indemnification. Tri-State specifically contends Nelson was not entitled to indemnity for breach of its duties under the contract because such indemnity was limited to OSHA fines, penalties, and expenses, none of which were incurred by Nelson. Tri-State also asserts the subcontract did not create a third-party right in Nelson to recover its losses for breach of OSHA standards. We disagree.
Indemnification agreements are commonly used in construction contracts. McNally Nimergood v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d 564, 570 (Iowa 2002). An indemnification agreement is created when the words used express an intention by one party to reimburse or hold the other party harmless for any loss, damage, or liability; intent is the controlling consideration. Bunce v. Skyline Harvestore Sys., Inc., 348 N.W.2d 248, 250 (Iowa 1984). No particular language is required to support indemnification, and a written agreement can be established without specifically expressing the obligation as indemnification. McNally Nimergood, 648 N.W.2d at 570-71.
A contract for indemnification is subject to the same rules of formation, validity, and construction as other contracts. McComas-Lacina Constr. Co. v. Able Constructors, 641 N.W.2d 841, 845 (Iowa 2002). Indemnification contracts will not be construed to permit an indemnitee to recover for its own negligence unless the intention of the parties is clearly and unambiguously expressed. Id. Broad and general language will not suffice to shift the burden of liability when the damages are caused by the indemnitee's sole negligence. Herter v. Ringland-Johnson-Crowley Co., 492 N.W.2d 672, 674 (Iowa 1992). Because of our court's reluctance to allow the burden of one party who is negligent to be transferred to another, indemnification contracts are more strictly construed than other contracts. McNally Nimergood, 648 N.W.2d at 571.
We believe that Sections 6 and 14 of the subcontract, when read in tandem, create a contractual duty on Tri-State to indemnify Nelson for damages or liability resulting from a breach of duty. Section 6 specifically provides that Tri-State agrees to indemnify and defend Nelson from "any and all claims, suits, or liability for injuries to property, injuries to persons, including death, and from any other claims, suits or liability on account of any act or omission of the Subcontractor or any of his officers, agents, employees or servants." Under Section 14, Tri-State was obligated to comply fully with all OSHA regulations pertaining to safety and the maintenance of safe working conditions in connection with the subcontract work. Tri-State was obligated to notify Nelson of any unsafe working conditions that existed at the job site, but failed to do so. We believe the "any act or omission" language of Section 6 specifically includes any failure to comply with OSHA safety regulations as provided in Section 14.
Ivan Russell, Tri-State's OSHA expert, testified Tri-State was subject to all OSHA regulations, and that Tri-State had a duty to comply with OSHA. The subcontract specifically provided that Tri-State was obligated to comply with all safety regulations and insure that the work site complied with those rules. Jerome Rieks, Sr., president of Tri-State testified it did nothing to comply with its safety obligations regarding the guardrail, and admitted that Sward would not have fallen had the guardrail been installed. He admitted that Tri-State never informed Nelson in writing of the unsafe conditions at the site. Rieks also admitted he did not authorize regular inspections of the site due to time and the expense of hiring an expert. Rodney Nohr testified that it is industry practice on large construction projects for the general contractor to rely on the subcontractor to look out for safety since the general contractor does not supervise the subcontractor's employees on a daily basis.
We conclude that the language of the subcontract was clear and unambiguous that Tri-State was obligated to indemnify Nelson for all damages and liability it incurred arising from injuries suffered by an employee due to failure to comply with OSHA safety regulations. We therefore reject Tri-State's argument it was obligated to only indemnify Nelson for OSHA fines and penalties it incurred.
IV. Imputable Knowledge. Tri-State next contends the district court erred in instructing the jury that Sward's knowledge of the dangerous condition was imputable to Tri-State. The district court, in Instruction No. 12A, instructed the jury that "[i]n regards to Tri-State's contractual obligations under its contract with Nelson, the law provides that as a supervisory employee Brian Sward's knowledge of the unsafe condition is imputable to Tri-State." Tri-State maintains that because Sward acted against its interests by not disclosing the dangerous condition, his knowledge of the condition cannot be imputed to Tri-State for purposes of showing a breach of duty.
Under Iowa law, knowledge of a supervisory employee may be imputed to his employer where the employer knew or should have known there was a possibility the employee might not comply with safety procedures. IBP, Inc. v. Iowa Employment Appeal Bd., 604 N.W.2d 307, 324 (Iowa 1999). However, Tri-State cites to Martin Pitz Associates, Inc. v. Hudson Const., 602 N.W.2d 805 (Iowa 1999), to support his claim that Sward's knowledge cannot be imputed to his employer. In Martin Pitz, a supervisory employee was injured when he crashed through sheathing and fell seventeen feet to a concrete floor. Martin Pitz, 602 N.W.2d at 806. The injured employee sued the general contractor and the two architectural firms involved in the construction. Id. The injured employee settled the suit with the general contractor, and the architectural firms sued the general contractor, claiming a right of indemnity. Id. A jury found the employee 100 percent at fault. Id. The district court therefore denied the architectural firm's indemnity claims. Id.
The supreme court affirmed the district court's denial of indemnity, concluding that imputed negligence was inapplicable since the negligence was that of the employee toward himself. Id. at 807. The court reasoned that under the facts of that case, there was no tort against either a third person or the master. Id. Furthermore, the court opined that knowledge could not be imputed in that case since liability had not been clearly spelled out in the parties' contract. Id.
In the present case, the jury found Tri-State was fifty percent at fault, while Sward was only five percent. Unlike the contract in Martin Pitz, the subcontract specifically set forth Tri-State's duties and its liabilities for any breaches of duty under the contract. Nelson's indemnification claim therefore is not grounded in injuries to the supervisory employee resulting from his own negligence, but injuries sustained due to Tri-State's failure to comply with the OSHA safety requirements provided in the contract. The holding in Martin Pitz is therefore not applicable to the present case. Sward's knowledge regarding conditions at the site is therefore imputable to Tri-State.
V. Negligence. Tri-State further contends the district court erred in overruling its objection to the court's instruction permitting the jury to assign causal negligence. Tri-State contends that under the subcontract it was Nelson that was actually liable for correcting dangerous conditions at the construction site, and that Nelson knew of the dangerous work conditions at the time of Sward's injuries, thereby negating Tri-State's liability under the subcontract.
We reject Tri-State's argument. Once the district court concluded Nelson could not seek indemnity for injuries caused by its own negligence, it concluded the only reasonable way to determine each parties' liability under the contract was to permit the jury to assign fault to the parties. We agree. A similar procedure was employed by the district court in Martin Pitz. Martin Pitz, 602 N.W.2d at 807. In the present case it is clear that Nelson was or should have been aware of the dangerous condition. It is also clear that Sward was aware of the condition but did nothing to inform either Tri-State or Nelson. Although Tri-State did not have specific knowledge of the safety violations, its president admitted that it was responsible to inspect all construction sites and fix any dangerous work conditions pursuant to OSHA regulations. The question was therefore to what extent did each party contribute toward Sward's injuries. The appropriate method of determining the percentage of fault was to assign that question to the jury. We find no error here.
VI. Calculation of Judgment. Tri-State lastly argues the district court erred in calculating the amount of Nelson's judgment. Tri-State does not challenge the reasonableness of the $2.9 million judgment, but instead contends it was entitled to a credit for the workers' compensation lien paid. We disagree.
The jury assigned fifty percent of fault to Tri-State, forty-five percent to Nelson, and five percent to Sward. Nelson settled with Sward for $2.9 million, an amount we believe is fair given the range of the evidence regarding Sward's present and future injuries and expenses. Because we have already concluded the district court correctly submitted the assignment of negligence to the jury, the court correctly concluded Tri-State was liable for fifty percent of the amount of the settlement paid by Nelson. Tri-State's share of indemnity was therefore correctly determined to be $1,526,315.70. We likewise reject Tri-State's contention Nelson is unjustly enriched if Tri-State is not given a credit for the waiver of the $687,527.27 lien by its workers' compensation carrier. There is no danger of double compensation here, since if Travelers had decided not to release its lien, it would have taken more money to settle the case. Travelers was simply cutting its losses given the possibility of significant future medical and legal expenses. See Knauss v. City of Des Moines, 357 N.W.2d 573, 587 (Iowa 1984). By voluntarily relinquishing its rights to the workers' compensation lien, Travelers forfeited its indemnification or lien rights, and correspondingly, so did Tri-State. Pirelli-Armstrong Tire Corp. v. Midwest-Werner Pfleiderer, Inc., 540 N.W.2d 647, 649 (Iowa 1995).
We have carefully considered all other issues raised by the parties, including Nelson's cross-appeal, and based on our holding above, conclude they have no merit. We therefore affirm the judgment entered against Tri-State.